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Thursday, 15 March 2012

The LVCR conspiracy

Today came the news that the appeal lodged by the governments of Jersey and Guernsey against the UK governments decision last year to close the VAT loophole (LVCR) has been lost.

For the hundreds of Channel Islanders that may face losing their jobs, this decision is catastrophic and my heart goes out to every single one of them and I hope that something is done to mitigate their circumstances as much as possible.

However, the politicians of these islands are using this event as a massive smokescreen and are whipping up an anti-UK sentiment that I just cannot let go unchallenged because it is diverting attention from making legitimate criticism of the way the Jersey government has behaved.

Firstly, I'll get this out of the way - I am not, nor have I ever been, nor will I ever be, proud to be a Jerseyman. Dr Johnson said that "Patriotism is the final refuge of a scoundrel" and I owe no allegiance to a geo-political entity. I only ally myself with ideas and moral principles. I can't be proud of being accidentally born on one piece of rock rather than another. And so accordingly, when Jersey is criticised, I have no urge to instinctively defend her without further thought. I'd try and be objective and look at the criticism being made and decide if it is justified or not before defending Jersey.

In the case of the VAT loophole, I'm sorry to say that Jersey is in the wrong.

The rule on VAT was that if you imported goods into the UK worth less than £15, you wouldn't have to pay VAT. This was called LVCR - Low Value Consignment Relief. It made a lot of sense at the time because the amount of VAT that would be paid would be minimal and difficult and expensive to obtain. It also created bureaucracy that was bad for people (the majority at the time) who were importing perishable goods like veg and flowers.

Then a problem arose - the internet. Some bright sparks got the idea that you could set up websites to sell CDs and DVDs at under cut prices. These were Jersey companies that started to do it, so there wasn't really a problem there. Until some UK companies decided to set up subsidiary companies and locating their warehouses in the Channel Islands. Naturally, this wound up the UK government.

So at the end of last year, as one of many things the current coalition government (who by the way, I am not a fan of) are doing to tackle to deficit, they decided to end this tax loophole. And the States of Jersey instinctively got defensive and decided to appeal the decision and today we found out that the appeal has been resoundingly lost.

Arguments against this decision have been made about how it is unfair (and not legal) to discriminate against the Channel Islands this way and that it's just another typical example of the UK taking advantage of our poor little islands.

But this is just a nonsensical argument. Why would the UK waste time and resources tackling other countries which are not currently causing a problem to the UK? The Channel Islands are the main centre of this problem for the UK and so it is totally natural that they would make the islands a top priority. And the argument that was brought forward in court today that it was not right to discriminate against the islands was dismissed by Justice Mitting who said that the UK government ministers had won the argument "handsomely" and that there was no legal requirement whatsoever for the UK to treat every jurisdiction the same. Which makes me wonder what sort of dodgy legal advice our government was getting...

What Jersey needs to just get over, is the fact they even though it is an island in the literal sense, it is not an island in the metaphorical sense. Jersey just can not get by ignoring the rest of the world and in particular it's closest neighbours geographically and economically. Allowing this business to go on in a way that was not intended in the original spirit of LVCR was always going to annoy the UK government because it deprives them of a considerable amount of taxation and creates unemployment there. You may say, but it will create unemployment in Jersey, and yes that is true, but that's not the responsibility of the UK government, it's Jersey's problem.

The UK can and will tackle any jurisdiction that it feels is abusing the VAT loophole and will get them in turn. The Channel Islands are not being discriminated against.

But what our government has to answer for is the pathetic way they have handled this, and trying to fool the masses into a state of fear. Anyone with half a brain cell could have told the government that their appeal against this decision was doomed from the start and a total waste of time. This escapade has cost the Channel Islands governments £400,000, plus half of the fees of the UK governments lawyers. This has cost us a pretty penny when we just cannot afford to be wasting money. At a time when public sector workers are facing a pay cut and all States departments have been told to make savings, why have we wasted money on something so futile?

Here's why - The Jersey government is desperate to divert attention away from their own failings and thinks that if it can pretend that this is the UKs fault, islanders will rally behind the Jersey government opposed to the UK government and we will avoid scrutinising the Jersey governments actions for fear of being labelled a traitor. That is what this is about. It's not about saving jobs (because even without this business the States have done a terrible job at stopping rising unemployment) it is about creating a scapegoat for the terrible direction the economy is headed in to save their own political backsides!

Now, I feel for every single person that may lose their job because of this and I wish that something happens and they are all looked after. But Jersey has a habit of predicting doomsday to scare people, and these exaggerations usually prove to be wrong. Many of the companies like Play.com have developed excellent reputations over the past few years and there is every chance that people may not run away from these companies just because they have a habit of going there.

So lets try and be objective and rational about this before jumping on any bandwagons!

I wonder how long it will be until Senator Bailhache uses this as an excuse to advocate Jersey's independence from the UK?

Sam, contrary to popular belief I agree with 90% of what you have said.

I do however disagree with your statement "The UK can and will tackle any jurisdiction that it feels is abusing the VAT loophole and will get them in turn. The Channel Islands are not being discriminated against.". This is simply not the case, Switzerland is a sovereign state, the UK wouldn't stand a chance of blocking imports from there.

The fact is, the geographical location of the Channel Islands to the UK that made fulfilment attractive, is what has now been used against us by the UK. In respect of the loss to the UK treasury, I have had meetings with high level customs officials that simply see this result as a nightmare scenario for an already overworked department.

The UK treasury will not see a penny of their anticipated £148 million, we heard last night that the major players are all leaving the Islands.

Still what's done is done and its time to move forward, what we need now is solid transportation links to Europe who are still open for business.

Switzerland may be a sovereign state, but if it acts in a way which is deemed to be incompatible with EU tax laws then the EU can act. But since Switzerland is in the EEA I'm not sure it would even need to come to that to be honest.

As for the geographical location being what made fulfilment, I hope that is right! The States and Jersey businesses have predicted doomsday over this whole affair, but fulfilment had more advantages than just the VAT. Companies like Play.com have a great reputation and there is no reason why people will totally stop buying from it and instead pay to drive and park for an expensive highstreet shop.

The UK government signalled their diaspproval with this industry as long back as 2006. That year Philip Ozouf as finance minister issued a fulfillment policy which was supposed to stop the industry growing and annoying the UK too much.

I'd be interested to see some statistics which porve we achieved that or pretended to but didn't achieve that.

If we have allowed this industry to grow and grow despite the warnings and policy of 2006 then more fool us, what did we seriously expect them to do.

I think, but could be wrong on this, that we prevented non local owned companies arriving after 2006 as our effort to limit the business. However, all the UK owned businesses just outsourced this work to the locally owned specialist fulfillment businesses.

Come to think about it it's a bit like zero ten isn't it. We were warned our tax system was not popular so we changed it but tried to deviously achieve the same ends with deemed distribution and got caught out.

2006 we announce our intention to curtail the expansion of this industry and then quietly let it grow in a different way, and guess what, we've been caught out again!

Keep up the good work Sam, I enjoy reading your well thought out views.

You're quite right. I have heard some defence of Senator Ozouf for kicking out the UK companies in 2007, as it was the right thing to do, but I haven't heard so much for the fact that they were all back in a few months using subsidiary companies and contracting local companies.

I really am interested to see how this goes, because Jerseys economy can only take so much of a beating. If our unemployment goes up beyond a certain point, the government will launch an austerity scheme that will make unemployment worse, and cut public services to a level that will make the island such a grim place to live, all the millionaires will bugger off and we'll find ourselves like Greece.

Back in the time of William Pitt and the 1805 UK Anti-Smuggling Bill, the Channel Islands objected to the attempts at stopping the smuggling from Jersey to avoid UK taxes and regulations. The Islands claimed it was discriminatory because similar restrictions were not being imposed upon France and Holland.The UK Government then answered that they had the powers to legislate for the Channel Islands but not for France or Holland. The law was enacted.

Yet at the same time an arrangement was made for the smugglers to carry on trading under a sort of licence trade to vent the markets of the various countries because business was being stifled.

Let’s face it there is denial over LVCR just as there is over finance itself. Don’t expect any rational analysis of issues. The Channel Island governments know exactly what it is they are protecting. LVCR and finance are both built on sand. LVCR was pursued opportunistically, even though it had the potential to draw adverse attention to the real tax avoidance game on which everything depends. It displays an extremely cavalier attitude if not recklessness towards economic policy.

The court case in London is simply window dressing for popular consumption back home; a diversion, as you say, from willful blindness in pursuing a policy that was bound to fail, being based on a blatant tax scam. It was good while it lasted and kept a few of the otherwise unskilled and unemployable off social welfare, in an economy that is incapable of providing real jobs. Those people will now find themselves unemployed and unable to find new work because the economy is skewed totally towards finance. There has been no diversification of the economy that would provide alternative employment. The islands hold only one suit of cards and they know it.

The authorities in the islands are in fact sighing with relief that the sacrificial lamb of LVCR has not damaged the real game, that of finance. Unemployment will rise inexorably from its current 4.7% (ILO rate) and the poor will suffer. Meanwhile the elite will carry on with impunity.

I sell on the internet, I do not run a fulfillment business though, and have done for the past 14 years (wow I am old!).

They (The States of Jersey Inc.) milked fulfillment for every penny it was worth at great cost to the average Jersey person in terms of inflated housing costs and increased benefit dependency leading to increased extortion (I mean taxation).

As I understand the implementation of this change...

All fulfillment businesses submit a VAT return. They were previously not charged for items under £15 (they didn't lower it it is just that when VAT went up the value of the VAT on an item increased accordingly, just like when GST went up the value of the items which could be imported GST free decreased).

It is only the businesses who submit those returns who will be subject to the VAT in practice and it will not affect normal people sending the odd item through the post. Therefore there is no additional cost to HMRC to collect the VAT (which is expensive on a per item basis but no extra cost if it is just charged on the basis of a VAT return).

There is nothing to stop businesses buying goods in the UK (and paying the input VAT) having them shipped to a fulfillment business based in the UK and then selling them to a customer and receiving the money in Jersey. The goods are shipped within the UK and because the financial transaction takes place outside the UK the money stays outside the UK. Therefore there is no VAT on the full sale value, just on the input value.

Now say this is on clothes where the retail price is about 500% of cost, it means that the UK will only receive 4% VAT not 20% VAT. A small gain for the UK government, but no help to UK retailers.

I would expect GST to rise now and a flood of British people leaving the Channel Islands and registering in the UK for benefits (remember we are British Citizens). Fortunately the people who are most likely to leave are those who are the biggest drain on our economy (the low paid workers and their families). We also can expect to see deflation in property and rental values thanks to over development on the island.

This will benefit the rich and harm the poor, like every decision that any government has ever made, anywhere in the world.

Ultimately Sam the finance industry is in danger already, not from external scrutiny but from the JFSC and Jersey Finance which is destroying the industry gradually, and I understand, they are currently in the process of bankrupting three Jersey companies at present (and putting 100 people out of work).

Greece is leading the way but I have high hopes that Europeans will throw off the tyranny of Big Government.

Fundamentally we will have a Soviet style collapse throughout Europe simply because Governments borrow money to buy votes from gullible voters who actually believe that they can get something for nothing. They have even invaded Afghanistan just like the Soviet Union did before their collapse.

I just wonder what it will take to make the people of Jersey accept that they have been led astray by self-serving politicians (and whatever you say they are most definitely NOT right wing, look at how big they have allowed government to get) and embrace the growing Libertarian movement.

Jersey was never in the wrong to offer VAT free goods to people. It is not illegal no matter how the socialists or Tax Justice Network people dress it up and it's the UK consumer who will suffer more for it. Good luck with your socialistic views and Darius's alleged middle ground perspectives which failed when he ran the Centre Party a few years ago and badly. There is no Offshore Finance Centre in the world with a labour party running it and the Firms within Jersey including Lawyers, Accountants and Trust Companies have full blown right wing connections and if you can't see that you must be blind.

I should point out though that I haven't anywhere alleged that Jersey was doing anything illegal. I specifically used the word "loophole" which implies that it is legal. But then there are plenty of things which are legal but wrong.

Also I think it's just naive to think that this will be worse for the UK consumer. If that were the case, why would the UK government be doing this? The UK economy is shrinking and they want consumers to spend more to help businesses create jobs etc. Also, UK consumers are actually quite happy about what the UK government is doing with LVCR.

As for an Offshore Finance Centre run by a Labour Party, Gibraltar. In fact their last election had a turn out of 87% compared to our measly 40%. Gibraltar is what Jersey should aspire to be like.

All Corporations rely on government to provide competitive advantages in order to maximise profits (lawyers especially). If there were no protections then Lawyers would not get away with extorting £500 per hour as the work itself is relatively simple. You forget I have kicked the States of Jersey's ass in Court representing myself. My cousin beat Pip Bailhahce as Attorney General, in the Royal Court of Jersey, representing himself.

That both Labour and Conservative have connections with these firms (65% of all MPs are law graduates) is no surprise but the relationship does not make them left or right wing, simply dependent on government. These corporations are solely motivated by profit and like all voters they will vote for the team that is likely to improve their lot the most.

If you think these connections are out of some idealogical belief rather than purely out of profit motive then you are as deluded, as you are ill informed.

The 'middle ground' is Libertarianism which holds that there should be no governments or corporations as far as possible, just free individuals. Libertarianism is on the rise.

You either believe that Nanny knows best and support government because something not nice might happen if you don't, or you take responsibility for yourself and accept that you control your own destiny.

I prefer to be a lion rather than a lamb. You live in fear if you want to.

It's interesting to hear the Libertarian perspective. Unlike most conservatives at least libertarians tend to be ideologically consistent. Though that being said I don't agree with any of it at all.

Libertarianism can't be a middle ground. It challenges orthodoxies and proposes a system of government (or lack of) that is so fundamentally different to what we have now, that it is radical and doesn't contain any common ground that people from both sides of the spectrum can settle with. That's not a middle ground.

I'm not deluded and understand very well the ideas about the profit motive, Adam Smiths "invisible hand" etc. And whilst Tories and Labour have connections to corporations, you'll note that Labour currently has a leader who is happy to destroy the relationship with certain businesses (e.g. News International) no matter how financially beneficial it may have been to the party, simply because it was the right thing to do. And I don't accept the idea that all politicians are only there to look after a certain lot, but that there are those who believe in right or wrong and act with integrity. Also, I choose to ally myself with the party of Trade Unionism, which doesn't stand up for corporate interests, but the material position of ordinary people. Surely a Libertarian would have sympathy with that position considering Trade Unions are non-governmental?

But market forces will not help poor people. The market harms poor people, because in their pursuit for more profit, the employers will do what they can the extract as much as they can from their businesses at the expense of wages and safety etc. I believe in a strong state that stops this from happening and creates a genuine level playing field for everyone that your sort of rampant capitalism could never create.

And since government is democratic and people participate in it, this "nanny" business is nonsense. Is a poor person who accepts charity a mug like someone that accepts a handout? It's just a ridiculous thing to think.

Should have spent longer on google. In December the Gibraltarian Socialist Labour Party won the election and their party leader Fabian Picardo is the Chief Minister of Gibraltar.

I really recommend any socialists reading this have a bit of a research of the GSLP, they are a great example of what a socialist party should be like. Their leader is a great speaker, passionate about modern socialism and their activists are incredible.

And I'm not really bothered what the Tax Justice Networks definition is, I'm not a member of it. The IMF has referred to Gibraltar as an Offshore Finance Centre.

Any Island with a bank on it is an offshore finance centre. But Gibraltar unlike Jersey has sovereignty issues and frequent fall outs with Spain. It is actually on a similar footing to the Falkland Islands and any Government seeking election would be concentrating on sovereignty as it's top vote winner (presumably).

The problem for the socialists in Jersey is that there are simply more middle to rights living in the Island and every election shows that.

Nothing wrong with the idea of a labour Government in Jersey but it would have to 'not' include a single person already known in politics with perhaps the exception of Sen. Breckon.

With Gibraltar, I don't really think the election was won by who could be the most "anti-Spanish" because both parties were pretty anti-Spanish. And from what I saw of the campaigning (there's lots of videos on youtube) it did seem like they were fighting over local issues. And the party was incredibly well organised and ran a great campaign with lots of activists. They even had a theme song!

I certainly agree with much of those second points though. I don't think that socialists would become the party of government over night, but if Jersey had a fair electoral system (which at the moment it definitely doesn't) the number of socialists in the States would go up and they would become an important political force, which is something I'd obviously be happy with.

And I also agree that if a socialist party were to start it would be far better if it came about organically from the grassroots because the whole of Jerseys political system is tainted and people would automatically view it with suspicion if it originated from a current States Member.